Hello,

First of all thanks for taking you time trying to help me answer this question.

I am currently living in South NJ, but working in Philadelphia.
In the W2 that I received from my employer they have deducted local taxes for Philadelphia, but did not deduct any taxes for New Jersey. Can I claim the local taxes charged for Philadelphia? If yes, how/which form should I use.

Thank you

You don't mention whether your employer is withholding PA income tax - please clarify that.

If you are a NJ resident working in Philly, your employer should be deducting both NJ income tax and the Philadelphia wage tax. Due to the reciprocal tax laws between PA and NJ your employer should not be withholding PA income tax, even though you have income from a PA job. However, the reciprocal agreement does not apply to the Cty of Philadelphia wage tax. Therefore you take the credit for "taxes paid to other jurisdictons" on your NJ return. You do that by completing Schedule A of NJ-1040 using the appropriate Philadelphia wage tax rates. Details are on Pages 41 and 42 of the NJ-1040 instructions:
www.state.nj.us/treasury/taxation/pdf/other_forms/tgi-ee/2008/081040i.pdf

If your employer is deducting State of PA taxes, you have a bit more work to so - you will need to file a non-resident PA income tax form to get a full refund, and you may have an issue with now having to make a large tax payment to NJ. You also need to get your employer to stop deducting for PA and deduct for NJ instead - you do that by giving your employer a completed PA form EV-420:
www.revenue.state.pa.us/revenue/lib/revenue/rev-420.pdf

Mukata - your response does not take into acccount the reciprocal tax agreement between NJ and PA.